An Insurance Risk Financing Facility (IRFF) launched on Monday to enable Ethiopia build the capacity of communities and businesses to manage shocks.
According to the United Nations Development Programme (UNDP), the facility would help to develop accessible, affordable, and innovative insurance products for farmers and businesses to bounce back stronger from socio-political as well as climatic shocks.
Jan Kellett, UNDP Global and Corporate Lead on Insurance and Risk Finance, Team Leader, said at the launching ceremony that the insurance penetration in Ethiopia was estimated at 0.3% in 2022, including agricultural insurance for smallholder farmers who are the bedrock of growth and food security.
IRFF could help to address gaps and build capacity to ensure growth in the variety and number of microinsurance products, Kellett noted.
“The establishment of the Ethiopia Insurance and Risk Financing Facility is a testament to our unwavering commitment to innovation, collaboration, and solidarity in addressing the complex challenges posed by disasters, emergencies, and climate change" noted UNDP Ethiopia’s Resident Representative Samuel Doe.
“The sector is challenged due to the absence of policies and completing demands from the government side. Though there is a disaster management policy which is currently under revision, it lacks the financial aspect of it. Thus, there is a need to mobilize resources from various stakeholders and proactive disaster risk financing as the demand is highly increasing”, says Fantahun Belew, Finance Work Stream Manager for Building Resilience in Ethiopia Project Office, Oxford Policy Management.
Solomon Zegeye, Micro and Agriculture Insurance Manager from Nyala Insurance said: “Disaster risk financing is a new approach and concept that coming up in the sector. Ethiopia's experience in the insurance sector, specifically in the micro and agriculture sector, is at an infant stage and already challenged by many problems”.
“Lack of supportive policies and strategies, lack of awareness and financial literacy, the issue of sustainability and affordability of products, undeveloped infrastructure and absence of advanced technology are a major challenge for the sector,” Solomon added.
The IRFF will also support the National Bank of Ethiopia in setting up an Insurance Supervision Directorate that will act as an independent regulatory body, overseeing the insurance industry, outside of the Central Bank per the new regulations.
Over the next five years, the IRFF will deliver an increased access by vulnerable countries and communities to inclusive insurance solutions, increased access by at-risk countries to sovereign risk finance solutions, insurance, risk financing and investment solutions are leveraged to protect natural capital to enhance resilience in countries and communities at risk, insurance investment in SDGs is scaled and insurance-linked financial instruments to crowd-in and de-risk investment are developed and deployed, and accessible to core stakeholders, industry expertise and analysis integrated into country development frameworks, and insurance and risk financing as sustainable development enablers deepened with research, evidence, technology, and innovation.
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